Australia consumer sentiment dives as rates, inflation rise

A MEASURE of Australian consumer sentiment slid for a sixth straight month to a 21-month low in May as surging inflation and rising interest rates weighed on family finances and spending intentions.

The Westpac-Melbourne Institute index of consumer sentiment released on Wednesday sank 5.6 per cent in May from April, when it fell 0.9 per cent. The index was down 20.1 per cent from May last year at 90.5, meaning pessimists far outnumbered optimists.

The gloomy mood could spell trouble for Prime Minister Scott Morrison who faces an election on May 21 and is running consistently behind in opinion polls.

“Two stunning developments are clearly unnerving consumers,” said Westpac chief economist Bill Evans.

“Firstly, on Apr 27, headline inflation was reported to have lifted above 5 per cent for the first time since 2007. Then, on May 2, the Reserve Bank raised the cash rate for the first time since 2010.”

The Reserve Bank of Australia (RBA) raised interest rates a quarter point to 0.35 per cent and warned that more hikes would be needed to restrain runaway inflation.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

The increase in borrowing costs only adds to price pressures from petrol, housing and food, and saw the survey’s measure of family finances over the next 12 months dive 11.2 per cent.

Finances compared with a year ago edged up 0.3 per cent, but that followed a sharp fall in April.

In an ominous sign for retailers, the survey’s measure of whether it was a good time to buy a major household item dropped another 5.7 per cent to be down a steep 24 per cent on a year ago.

Consumers were equally downbeat on the future with the survey’s measure of the economic outlook for the next 12 months off 5.8 per cent, while the outlook for the next 5 years lost 4.1 per cent. REUTERS